Nine Dragons Paper Holdings (2689.HK) Earnings Review: FY26 above expectation; Ongoing elevated capex on new pulp and paper capacity expansion; maintain Sell

Nine Dragons Paper (2689.HK) reported FY26 net profit up 103% yoy and recurring profit up 148% yoy, above our expectations but in line with Bloomberg consensus, mainly driven by better-than-expected unit profit for paper products, and in line with the preliminary profit alert released earlier. The company declared a dividend with a 12% payout ratio, versus no dividend in FY25. We revise up our recurring EPS estimates for FY27-28E to reflect better unit profit, and introduce our FY29E forecast. Despite better-than-expected unit profit, we believe continued supply pressure from integrated pulp-paper projects in the industry will weigh on the margin outlook for both pulp and paper. ND Paper has improved its unit NP through recent expansion into pulp, but incremental room to improve is limited. Deleveraging is also remote with sustained elevated capex ahead, as FY27 capex guidance was revised up again by over 50% to support new pulp and paper capacity expansion. Maintain Sell with a revise